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Video Description

Type: KIHASA Policy Featurette

Topic: National Pension Fund: Is a 1 Percentage Point Increase in Return Possible?

Guest Speaker: Professor Kim Woo-chang, KAIST; Professor Yang Jae-jin, Yonsei University; Choi Hyun-soo, Research Fellow, KIHASA

Transcript

Choi:

We may not be able to say with certainty that increasing the National Pension Fund’s rate of return is possible, but should we still seek ways to achieve it?

Kim:

We have no choice but to speak in probabilistic language. It’s like throwing a die―you don’t know which face will come up, but what we can say with certainty is that each face has a 1-in-6 chance. So just because we use probabilistic language doesn’t mean we’re being vague. With that in mind, I’ll speak in probabilistic language. In my view, it’s quite possible to increase the Fund's return by about 1 percentage point - but only if the public understands and accepts what that entails. After all, in a year like last year, increased volatility would have increased the possibility of losses. Of course, that doesn’t mean that the fund would collapse. And it should be the government’s responsibility to convince the public and promote their decision. If that can be done, then I think a 1-percentage-point increase in yield is quite achievable.

Yang:

Many professionals in the field say the same thing: a 1 percentage point increase in returns is achievable. Of course, volatility would rise--but that doesn’t mean the fund will collapse. It simply means more fluctuations, with returns going up and down. So yes, volatility increases, but achieving a 1 percentage point gain is definitely within reach.

Choi:

It’s really individual investors who tend to be sensitive and anxious about volatility. But as you mentioned earlier, when we consider the size of the pension fund and the length of its investment horizon, it's something that can definitely be weathered. In the end, what really matters is the average level of returns the fund reaches over time.